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Conventional Mortgages

A conventional mortgage is a loan that is long term (typically 30 or 15 years) and meets the guidelines as put forth by FNMA (Federal National Mortgage Association) and FHLMC (Federal Home Loan Mortgage Corp.).

Mortgage Insurance (MI) is required on a conventional loan if the loan-to-value is more than 80%. Mortgage insurance is typically paid on a monthly basis.

A conventional mortgage is generally non-assumable and does not have a pre-payment penalty.

Fixed Rate Conventional Mortgage

The most common type of Conventional Mortgage is a fixed rate mortgage. Two distinct characteristics of a fixed rate loan are an interest rate that doesn't change and a loan amount that is repaid in equal monthly payments.

The most common term lengths for fixed rate mortgages are 30 years and 15 years. A 15 year term usually has a lower interest rate than a 30 year term mortgage.

Adjustable Rate Conventional Mortgage

Another type of Conventional Mortgage is an adjustable rate mortgage (ARM). The main difference between an ARM and a fixed rate is that an ARM has an interest rate and monthly payment that is subject to change.

An ARM is a mortgage with an interest rate that is subject to change periodically, based on an index that is determined at the time of obtaining the mortgage. The interest rate may go up or down, and the monthly payments of the mortgage will adjust accordingly.

There are advantages to an ARM. Usually, the beginning interest rate of an ARM is lower than a fixed rate mortgage. This can be great for someone that is going to live in his or her home for a short time (usually less than 5 years). With a lower interest rate, the loan's payments are smaller. With a smaller monthly payment, a borrower can sometimes qualify for a larger loan amount. Some adjustable rate mortgages can be assumable. If interest rates remain steady or actually decrease an ARM can be less expensive than a fixed rate mortgage over the long term.

The main disadvantage of an ARM is the possibility of a higher monthly payment. The details of an ARM can be complex; borrowers should consult their loan officer with any specific questions.

Balloon Conventional Mortgages

One last type of Conventional Mortgage is a balloon mortgage. This type of mortgage has a fixed interest rate, but at some point requires the borrower(s) to make a final lump sum payment.

Usually, a balloon mortgage has a fixed interest rate and monthly payments are based on a 30 year fixed payment schedule. However, the actual term of the loan is shorter than the 30 year payment schedule. Most balloons have a 5 year term or a 7 year term. At the end of the 5 or 7 years, the loan is due and payable in a lump sum. However, most balloon mortgages include an option to refinance the loan at the end of the 5 or 7 years.

A borrower might choose this type of mortgage if he or she plans on living in the home a short amount of time and does not plan on needing a mortgage for 30 or 15 years. Therefore, he or she would want to take advantage of the lower interest rates offered with a balloon mortgage.

Jumbo Mortgage Program (also known as Non-Conforming)

A jumbo mortgage consists of the same features as a conventional mortgage (see definition above), however the loan amount exceeds the loan limit set by FNMA and FHLMC.

Fixed Rate Jumbo Mortgages

One type of jumbo mortgage is a fixed rate mortgage. The characteristics of a jumbo fixed rate mortgage are the same as a conventional mortgage. Depending on the loan amount however, certain loan-to-value restrictions may apply.

Adjustable Rate Jumbo Mortgages

Jumbo mortgages can have adjustable rates also. The features of a jumbo adjustable rate mortgage (ARM) are similar to those of a conventional mortgage. Depending on the loan amount however, certain loan-to-value restrictions may apply. Consult a qualified loan officer for details.

Balloon Jumbo Mortgages

Balloon jumbo mortgages are another option for a borrower. The guidelines for this type of jumbo mortgage vary depending on lender/broker. Consult a qualified loan officer for details regarding this type of loan.

FHA Mortgage Program (a type of Government-Guaranteed mortgage)

A FHA mortgage is obtained through a local lender/broker, however the Federal Government guarantees these mortgages through the Department of Housing and Urban Development (HUD).

A borrower might choose a FHA mortgage because it allows for greater flexibility in income, credit, and down payment requirements. A loan that might not be approved as a conventional loan might be approved as a FHA loan.

All FHA loans require Mortgage Insurance (MI). An up front premium of 1.75% of the loan amount is required and is typically added to the loan amount. A FHA loan also requires a monthly MI premium of .5%. In comparison, a conventional mortgage only requires a monthly MI premium if the loan-to-value is over 80%.

VA Mortgage Program (a type of Government-Guaranteed mortgage)

A VA mortgage can be obtained through a local lender/broker, and similar to a FHA mortgage, it is guaranteed by a government agency, the Veterans Administration.

Unlike any other mortgage programs described, only eligible veterans that have served in the armed forces (as defined by VA) can obtain a VA loan.

One feature of a VA loan is the ability of an eligible veteran to finance up to 100% of the purchase price of a property. The veteran can also add the VA funding fee to the purchase price, thus lowering the amount of cash the borrower needs to purchase a home. The VA funding fee is a fee charged by the Veterans Administration to insure the payment of the mortgage.

All veteran borrowers should consider this mortgage program when reviewing their borrowing options. Regional VA offices can answer any questions regarding a veteran's eligibility status.

The Loan Process

Step 1: Consult With Us

Let us know what your personal needs are.
We will discuss loan programs & your options.

Step 2: Complete The Loan Application

Fill out the application to get your loan started.
We will meet with you or send you the application and legal disclosures for your original signatures.

Step 3: We Order Your Appraisal and Title Report, and lock your rate ( When Applicable).

The appraisal fee is usually paid by the borrower when the appraiser comes to inspect the property.
The cost for an appraisal is determined by the value of your property.

Step 4: Completed File is Submitted to the Lender

Your application, disclosures, credit report, bank and asset statements, escrow instructions, preliminary title report and appraisal are submitted to the lender once we have received these and any other needed documentation.
To process your loan we will need documentation from you to verify your income and assets. Documentation may vary depending on your loan program.
We will need copies of the following:
- Recent pay stubs covering the most recent 30 day period.
- W2’ forms for the previous two years or verification of other types of income.
- Most recent three months worth of statements for your checking, savings and investment accounts.

Step 5: Approval Received with List of Conditions to be Met

The lender accepts the loan request and may have additional documentation that they will need before docs are drawn or before they fund the loan.

Step 6: Docs are Ordered and Sent to Escrow for You to Sign

Once prior to doc conditions are reviewed by the lender, they will draw your docs and forward them to the escrow company.
Escrow will prepare the docs for signing and contact you to arrange a time and place for you to meet with a notary..

Step 7: Lender Reviews Docs and Final Conditions

Escrow sends the signed docs back to the lender for final review.
Any final prior to funding conditions are also received and reviewed.

Step 8: Lender Funds Your Loan

The lender sends a wire to the title company.
Escrow will disburse the funds to the appropriate parties.
Your loan closes, Congratulations!

Feel free to contact me, if I can be of any service!